Thursday, April 29, 2010
by Aleksandra Todorova for SmartMoney April 8, 2010
The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.
For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.
Estimate your credit scores in minutes
Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide: Do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer-operations manager at Fair Isaac, the company that developed FICO credit scoring.
It's a question of more than just losing a credit line. Closing a credit card can have a big impact on your credit scores. That is, unless you do some groundwork in advance.
With the help of some easy -- if often counterintuitive -- steps, you can improve and retain healthy credit scores even in today's fast-changing credit environment. Here are five:
1. Open more credit cards For years, experts warned that opening new credit cards hurts your credit score -- not to mention enabling you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score.
"More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, the president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.
Expanding your credit card portfolio isn't something you should do tomorrow; it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months to a year before applying for a fourth card.
A great credit score won't cut it for loans
Go to Wall Street Journal
2. Max out (some of) your credit cards A quirk of credit score math makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.
Some types of cards don't report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. (These cards have a credit limit, but cardholders can exceed it and must pay off the excess in full on their next bill.)
When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.
But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)
Boost your credit scoresYour scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.
3. Don't ask for a lower APR In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.
"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."
4. Closed a card? Don't pay it off Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike, you may not want to rush to pay off every last penny of the balance.
In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.
"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.
5. Mix business and personal expenses Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.
The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.
On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.
More from MSN Money and SmartMoney
Lifetime cost of bad credit: $201,712
Cashing in on credit card rewards
5 ways to kill your credit scores
How financial reform could affect your credit
6 secret credit card perks
Is it time for you to go paperless?
Credit scores: Credit CARD Act changes the rules - MSN Money
Tuesday, April 27, 2010
How Will Mortgage Bankers Survive in 2010?; HUD Online Training; Mortgage Rate and Yield Spread Primer
Buybacks continue on, from both the agencies and large investors. Firms will continue to deal with this (and reserving for repurchase requests) for years to come. A possible requirement to hold up to 5% in capital of any loan securitization has been mentioned, but seriously, not even Bank of America or Wells Fargo could handle this one, much less a small mortgage bank trying to hedge. Depending on geographic area, some mortgage banks are anxiously awaiting the return of an adequately priced and risk-weighted jumbo market, and there have been some steps in that direction lately.
Of major concern, however, is the overall size of the mortgage market in 2010 and 2011. No analyst or investor is predicting increased production in either year versus that of 2009. Many are predicting 2010 to be about half that of 2009, volume-wise. And will margins be twice as much to compensate for it? I doubt it - if anything mortgage companies have shown a tendency to cut margins to the bone in an effort to maintain volumes and keep their staff employed. But the first quarter of 2010 was not all that bad, and the second quarter, although slower, is "ok". So where does that leave the 3rd and 4th quarter? Things could become ugly. Some originators continue to talk about adding production staff, but throwing bodies at diminishing volumes may not be the perfect answer. Some mortgage banks, and smarter minds than mine, are installing metrics to measure both loan agent and branch profitability while they are selectively adding production staff. So that if and when the time comes to smartly reduce staff, they'll be ready.
Kate Berry with American Banker wrote a very good article on 4/14 about pull through. Tightened underwriting guidelines have increased the risk that a loan will not make it all the way through the pipeline. So not only are more hours being spent on processing and underwriting loans that don't qualify, but lenders' hedge costs are impacted by seeing pipelines that many not materialize. The author reports that the MBAA reports that retail loan officers had an average pull-through rate of 64% in the first half of 2009. This means, on the flip side, that 36% fell out, often after having been extended with more hedge costs. Obviously a shorter lock period is better for hedging purposes: it gives the borrower less time to drop out. Also, other companies are pre-underwriting the loan, and running it through QC and compliance, before it can be locked. And on the investor side, whether wholesale or correspondent, lenders are carefully watching their client's pull through rates and base pricing on it.
The Census Bureau actually does something more than hire people. It issues reports! One of its latest updates shows that homeownership rate here in the US fell to an average of 67.2% of qualifying Americans who own homes in Q110, dropping 1bp from 67.3% in Q409. It was the lowest rate since the 67.1% mark in the first quarter of 2000. The rate reached its height in 2005. Is this really a bad thing? I don't think so, although I am not sure what they mean by "qualifying" which is critical. Many argue that "unqualified" borrowers helped put us into this mess. The national vacancy rate for homeowner housing remained almost unchanged from a year ago. Homeowner vacancies reached 2.8% in the South, the highest of any region, and the West followed with a 2.7% vacancy rate. The Midwest was third with a 2.6%, and the Northeast had the smallest rate at 1.8%.READ MORE. SEE CHARTS
Investor changes continue, although there is more focus on documentation rather than changing LTV's and DTI's. GMAC has posted an update to its guidelines which applies to its Conforming, Jumbo, FHA product lines, and has suspended its Conforming IO Flex ARM product. Citi has posted an update to its guidelines which applies to its FHA product line, and has suspended its Agency Community IO product.
Who can't use some additional training?
HUD's Mortgagee Letter 2009-45 announced its "Eclass System" to provide a web-based training to HUD-Approved Lenders, HUD-Approved Housing Counseling Agencies, Non-Profit Housing Counseling Agencies, and HUD staff. Eclass is required to be completed prior attending HUD Loss Mitigation Training. Modules include "Early Delinquency Servicing Activities", "HUD's Loss Mitigation Program Overview", "Special Forbearance Option", "Loan Modification Option", "Partial Claim Option", "FHA's Home Affordable Modification Option (FHA-HAMP)", "Pre-foreclosure Sale Program", "Deed-in-Lieu of Foreclosure", "Extension of Time Requests and Variances", "Single Family Default Monitoring System", "HUD's Tier Ranking System", and "Property Condition and Re-Conveyance Appeal Process". Check out address: https://elcass.hud-nsctraining.com FHA Mortgagee letters can be found online at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/
Gone is real estate investment trust American Mortgage Acceptance Company, which filed for Chapter 11 bankruptcy protection. The REIT, which invested in multifamily and commercial property mortgage loans, said in court documents it had assets of about $6.4 million and liabilities of about $120 million versus assets worth $666 million in 2007.
For the most parts folks in the business know that mortgage rates are not pegged to the 10-year Treasury note, but Secondary Marketing staffs are occasionally asked, "How are mortgage rates set?" Agency mortgage rates are based off of Mortgage-Backed Security (MBS) pricing, which, although they are usually traded as a spread off of Treasury securities, are influenced by many different factors. Interest rate expectations, supply and demand, inflation expectations, tax rates, and prepayment & delinquency expectations all are factored in. After all, MBS's are not, in theory, backed by the US government but instead are backed by borrowers. Unless the United States heads down the path of Greece, rates on Treasury securities will always be less than rates on mortgages. Unfortunately, our government is spending about $1.50 for every $1.00 it brings in, and our debt is almost 60% of GDP - neither of which are conducive to lower yields in general. MORTGAGE RATES PRIMER and YIELD SPREAD PRIMER
Not much happened in the markets yesterday. The $11 billion 5-yr TIPS auction went "ok" or was "sloppy" depending on who you ask. News from Greece and the Euro continues to push the markets, as it very well may for months to come. Concern over sovereign credit risk also dragged down the euro and Greek bank stocks and pushed the cost of insuring Portugal's debt to new highs, underlining concerns that it could be the next euro zone state to suffer a debt crisis. The backing of Germany is vital for any aid package. And no one knows what is going to come out of the financial reform measures that are being debated in Congress. Of interest to folks who follow the news of mortgage investors, the US Treasury plans to start selling off its 27% stake (7.7 billion shares) in Citigroup, and Morgan Stanley has the authority to sell up to 1.5 billion common shares. As you'd expect, this pushed Citi's share price down.
There might not be much happening today either, although we do have this auction to get through: $44 billion 2-yr's today ($44 billion 5-yr tomorrow, and $32 billion in 7-yr's Thursday). Traders are continuing to report that "Non-agency spreads grind tighter in the absence of meaningful supply" meaning that non-Fannie, Freddie, and FHA loan production is slow, and the demand for it may be picking up a little. But who is going to trust a rating agency evaluation of any new securities? Don't look for much from the FOMC meeting tomorrow, as overnight rates will remain unchanged. Currently the 10-yr is at 3.75% and mortgage prices are better by between .125 and .250.
A husband in his back yard is trying to fly a kite. He throws the kite up in the air, the wind catches it for a few seconds, and then it comes crashing back down to earth.
He tries this a few more times with no success.
All the while, his wife is watching from the kitchen window, muttering to herself how men need to be told how to do everything.
She opens the window and yells to her husband, "You need a piece of tail."
The man turns with a confused look on his face and says, "Make up your mind. Last night, you told me to go fly a kite."
How Will Mortgage Bankers Survive in 2010?; HUD Online Training; Mortgage Rate and Yield Spread Primer
NEW YORK (CNNMoney.com) -- Mortgage fraud is still on the rise, according to a report released Monday, despite efforts by law enforcement and policy makers to rein it in.
Incidents of mortgage fraud perpetrated by industry professionals increased 7% in 2009, after jumping 26% the year before, said the Mortgage Asset Research Institute (MARI), a division of LexisNexis. The worst-hit states include Florida, California, Arizona, New York, New Jersey and Maryland. (See table below).
|10 Top scam states|
|The places where mortgage fraud hit hardest.|
The jump in mortgage fraud is a troubling trend, given that it played a big role in setting the housing crisis in motion, with mortgage professionals doing things like listing false income claims for borrowers, and overstating a home's appraised value.
And the statistics may not capture the entire picture, according to Jennifer Butts of LexisNexis Mortgage Asset Research, since fraud isn't usually detected until a loan goes bad.
"We believe that mortgage fraud is significantly understated," said Butts.
Florida was the worst hit state, according to MARI, with a mortgage fraud index reading of 292. That means the Sunshine State had nearly three times the expected level of fraud given the number of loans issued there. A score of 100 would indicate the state had exactly the amount of fraud expected and a score of 0 would mean no fraud at all.
Although Florida's reading was the highest in the nation, it was still a huge improvement over 2008, when it was 430.
New York was the second worst state for mortgage fraud with a mortgage fraud index reading (MFI) of 217, up 14% from 2008. California was next at 159 and Arizona was fourth with 158.
New York's second place ranking was primarily due to illegal activity in the New York City metropolitan area. The Big Apple had the highest rate of mortgage fraud of any metro area in the nation, while Los Angeles came in second and Chicago third.
The report described several types of fraud that were detected most often. These include so-called "liar" loans, in which mortgage professionals knowingly listed false income claims for borrowers; inflated appraisals, in which mortgage loan officers or brokers pressure appraisers to overvalue a home so it would qualify for a bigger mortgage; and false occupancy claims, which is when buyers claim they will live in a home but are actually buying it for investment purposes.
The nature of fraud has changed somewhat since the housing bust, according to Denise James of LexisNexis Risk Solutions. "New trends continue to emerge," she said.
With the explosion in foreclosures in many U.S. communities, for example, foreclosure rescue scams are proliferating.
One example of this kind of crime occurs when scam artists convince distressed owners to sign over their deeds, which the scammers claim they need to keep the homes out of foreclosure.
The scammers then turn around and sell the homes to straw buyers, financing the sales with inflated appraisals. They get, say, an appraisal of $100,000 for a house worth $30,000. When the deal closes, they take the cash and walk away, failing to make any payments. That sticks the banks with properties worth far less than they gave out in mortgage loans.The growing rate of mortgage fraud could exacerbate the country's foreclosure problem. The United States is already on course to have more than a million homes lost to foreclosure in 2010, according to RealtyTrac, the marketer of foreclosure properties.
10 Top mortgage fraud states - Apr. 26, 2010
Monday, April 26, 2010
In latest quarterly survey by the National Association for Business Economics, the index that measures employment showed job growth for the first time in two years -- but a majority of respondents felt the fiscal stimulus had no impact.NABE conducted the study by polling 68 of its members who work in economic roles at private-sector firms. About 73% of those surveyed said employment at their company is neither higher nor lower as a result of the $787 billion Recovery Act, which the White House's Council of Economic Advisers says is on track to create or save 3.5 million jobs by the end of the year.
That sentiment is shared for the recently passed $17.7 billion jobs bill that calls for tax breaks for businesses that hire and additional infrastructure spending. More than two-thirds of those polled believe the measure won't affect payrolls, while 30% expect it to boost hiring "moderately."
But the economists see conditions improving. More than half of respondents -- 57% -- say industrial demand is rising, while just 6% see it declining. A growing number also said their firms are increasing spending and profit margins are widening.
Nearly a quarter of those surveyed forecast that gross domestic product, the broadest measure of economic activity, will grow more than 3% in 2010, and 70% of NABE's respondents expect it to grow more than 2%.Still, the survey suggested that tight lending conditions remain a concern. Almost half of those polled said the credit crunch hurts their business.
Economists say the stimulus didn't help - Apr. 26, 2010
Sunday, April 25, 2010
The big news in this week's economic data came from the housing sector. March Existing Home Sales rose 7% from February, and existing home sales were 16% higher than one year ago. Inventories of unsold existing homes fell to an 8-month supply, from 8.5-months in February. March New Home Sales were even better, jumping 27% from February to the highest monthly rate since last July. This marked the largest single-month increase in new home sales since 1963. The chief economist of the National Association of Realtors (NAR) credited the homebuyer tax credit for the strong March housing data. Buyers must sign a contract by April 30 to take advantage of the tax credit, so the April data should benefit as well.
Friday morning, CNBC reported that support is growing among Fed officials to begin sales of mortgage-backed securities (MBS) from the Fed's portfolio. In a program which ended March 31, the Fed purchased $1.25 trillion of MBS to help lower mortgage rates and boost the economy. According to CNBC, "at least" six members of the Fed's policymaking committee support near-term MBS sales if the economy continues to improve. The selling could begin as soon as the third or fourth quarter of this year. Fed Chief Bernanke still views the likely time frame to begin MBS sales as next year, but his recent comments have indicated a willingness to keep more options open. With the next Fed meeting taking place on Wednesday, the 2:15 et release of its statement will take on added significance. If the Fed actually conveys an intention to begin to sell MBS soon, mortgage rates would be likely to rise on the news.
The big story next week will be Wednesday's Fed meeting. No change in rates is expected, but investors will be closely watching for hints about future Fed moves to tighten policy or to sell assets. Friday's Gross Domestic Product (GDP) report for the first quarter will be the most significant economic data. GDP is the broadest measure of economic activity. The Chicago PMI Manufacturing index will also come out on Friday. Consumer Confidence and Consumer Sentiment will round out the schedule. There will be Treasury auctions on Tuesday, Wednesday, and Thursday.
Market Recap - Week Ending April 23, 2010
Obtaining a loan during Great Recession requires perseverance, hard work - Phoenix Business Journal:
Even though Chase Bank shut down its $250,000 line of credit for Randy Lujan’s general contracting firm, Sonoran Bank thought it was worth the credit risk.
IFCM Inc. used the line about a once a year. It served more as a safety net than a funding mechanism for the bonding company. That’s why Lujan was surprised to see it had been removed when he checked his account online more than a year ago.
The bank told him since he didn’t use it, they chose not to renew it, eliminating some exposure.
“After that happened, it left a bad taste in my mouth,” said the president and CEO of the Gilbert company.
So he called a friend on Sonoran’s board of directors, and within weeks the line was granted and bumped to $400,000.
Lujan had a profitable company, good cash reserves, liquidity and excellent credit, but his trends were down even with a good pipeline of business from bank construction — ironically, mostly from Chase and Bank of America.
GOOD CREDIT RISK
The credit line is partially cash secured through a CD, creating no risk to Sonoran on that portion.
“He was a good credit risk for us,” said Frank Coumidas, senior vice president of lending at Sonoran Bank. “There’s not a lot of businesses right now that can say they’re trending up.”
IFCM used the credit line numerous times last year because business picked up as big banks received money through the federal Troubled Asset Relief Program. Without that line, Lujan said he would have needed to secure another loan.
Before the downturn, landing a commercial loan would never make headlines. But, given the credit crunch and this market’s reliance on financing, getting the green light for a loan is no small feat.
I/o Data Centers LLC, which designs and builds storage capacity for some of the world’s largest corporations, is well-capitalized and growing. But the company recently needed a loan for additional capital and infrastructure enhancements.
Executives began shopping a year ago for a debt provider and quickly were courted by financial firms, said Parker Lapp, chief corporate development officer of the Tempe company.
Mutual of Omaha prevailed, offering a competitively priced, long-term loan.
Kevin Hollarand, Mutual of Omaha’s head of commercial and real estate lending, said his bank looks at the individual seeking the loan, the company’s cash flow, collateral, and the overall conditions of the business and industry.
“We’re able to structure deals that correlate with the company’s cash flow,” Hollarand said. “A lot of banks aren’t even able to sit down with a client because they’re having capital or regulatory issues.”
Last year, Mutual of Omaha loaned more than $200 million in Arizona.
Dean Rennell, head of Arizona business banking at Wells Fargo Bank, wants his team to identify the top 10 companies in each industry and seek their business. Each business banker is expected to make three face-to-face calls on prospects every week.
Rennell collects financial information from each potential borrower and links it to the size and type of loan request. He favors companies with established work contracts or specialized business lines.
That’s one of the reasons the San Francisco-based bank was attracted to American Metals Co., which processes, buys and sells scrap aluminum, brass, copper and other metals.
The Mesa company wanted to purchase a portable shredder, an $850,000 machine that breaks down scrap metal, which would allow AMI to sell the pieces directly to steel mills and consumers.
Finding financing was not easy.
President Irwin Sheinbein spoke to three other banks, which examined his records with a “magnifying glass” and “fine-toothed comb.”
“Getting the type of loan I wanted was frustrating,” he said. “As a small-business owner trying to grow my business, it was extremely challenging.”
After lengthy negotiations, Wells financed about 80 percent of the cost.
Sheinbein said the machine will bring in more revenue, while cutting freight costs in half by reducing the size of scrap. Although he secured a loan, he wants the banking community to be more sympathetic to the needs of small businesses.
“The economy depends a tremendous amount on small businesses such as ours,” he said.
American Metals Co.: www.americanmetalsco.com
IFCM Inc.: www.ifcminc.com
i/o Data Centers: www.iodatacenters.com
Obtaining a loan during Great Recession requires perseverance, hard work - Phoenix Business Journal:
Despite owning a successful luminary business and having a $120,000 purchase order in hand from three major retailers, John Norberg couldn’t secure a loan from M&I or Chase banks.
Russ Perry’s young marketing and advertising firm has avoided debt and weathered a storm that rocked his industry, yet Wells Fargo bankers quickly told him he wouldn’t qualify for a line of credit.
It’s a common story for thousands of small-business owners in the Valley who continue to have loans rejected by banks, which sparks the question: What do we have to do to get a loan?
“You need to know what the bank needs to know before they need to know it,” said Scott Mahoney, managing partner of Catalyst Corporate Solutions in Peoria.
Mahoney has spent more than a decade in the financial services industry, including stints as a commercial banker at JPMorgan Chase & Co. and KeyBank’s Technology Investment Banking Group. Now, he’s advising businesses on how to land financing in a difficult environment.
Cash always has been king, but it’s never been more important than now.
“Cash flow, that’s paramount,” said Glenn Gray, CEO of Sunwest Bank, which took over First State Bank in Flagstaff after the Federal Deposit Insurance Corp. shut it down in September.
But that’s only one of the criteria his bank assesses before granting a loan.
He advises business owners to have high-quality financial reports prepared by an accountant — even better, audited by a certified public accountant. Important factors include inventory, quality of receivables and their turnaround time, and current assets.
On the liability side, Gray wants to know whether companies are accounting correctly for their payables and accruing their expenses and cost of goods sold properly. He also wants to examine year-over-year trends and what’s driving revenue.
When a potential borrower doesn’t want to supply tax returns or reports a discrepancy between company financials and tax statements, that’s a big red flag, Gray said.
“We are certainly putting more credence on quality financials,” he said.
Jeff Kunkel, a senior vice president and West region manager of Chase, lists cash flow, liquidity and capital position among his highest priorities. But he also wants to know how a company has adjusted during the recession, the purpose of the loan, if it has been well-thought-out, and if the right business decisions have been made.
This year, Chase intends to double its lending to $10 billion nationwide and hire 325 business bankers to handle that load. If a loan is rejected, a second team will review it and help the customer find either an in-house solution or another lender.
In 2009, lending was way down at Chase, one of the largest banks in the world. When asked why, Kunkel said demand sank as businesses struggled to survive — a similar refrain among many bankers the Phoenix Business Journal talked to for this story.
“It wasn’t so much we stopped lending. The demand is what came to a screeching halt,” Kunkel said.
Norberg, president of RC Co., said he was turned down for a loan last May because of a lack of business experience. He bought the company two years ago, though it was established in 1984.
Norberg’s accountant drafted a business plan for the $100,000 loan, and he relied on the advice of his wife, a former business banker. But even a $120,000 purchase order from Walgreens, Ace Hardware and True Value wasn’t enough to sway the banks.
Within a few months, he found Performance Funding, a Phoenix factoring company that provides accounts receivable financing. The company provided the loan, and Norberg was able to order the supplies to cover the purchase order, which was more than he borrowed.
“If we wouldn’t have gotten funding from Performance last year, we would be bankrupt today because every penny we had, we put into that company,” Norberg said. “We wouldn’t even be in our house.”
ACCESS TO CAPITAL
Perry gave up looking for a credit line after being discouraged by the process. He was seeking a $10,000 to $20,000 credit line as a precaution, in case he needed to hire a new employee or buy software or hardware.
He was rejected a few days after he applied, which entailed filling out a form with personal and business information.
“There was no guidance after that,” said the founder of Keane Creative in Tempe, which has never posted an annual loss.
Perry had worked with the same banker for years and established business accounts with San Francisco-based Wells. Despite the setback, his company hasn’t switched banks. He likens the idea to leaving the Mafia.
“Since then, I haven’t tried again. I felt like a little fish,” he said. “It is very hard to grow because we can’t get that access to capital.”
Keane Creative: www.keanecreative.com
RC Co.: www.luminarias.com
Wells Fargo: www.wellsfargo.com
JPMorgan Chase & Co.: www.jpmorganchase.com
Sunwest Bank: www.sunwestbank.com
Securing a Business Loan
1. Have your financial statements in order. Lenders want to know the business is making money.
2. Be able to explain how the loan proceeds will be used. Lenders like to know whether the loan proceeds are going to increase cash flow.
3. Make sure the business has enough collateral (e.g., accounts receivable) to justify the line of credit. Collateral are assets offered as a repayment source.
4. Ensure the owners are invested in the company. Lenders are looking for sufficient equity in the company on the part of an owner.
5. Know your local economy and competition. Be prepared to describe the primary threats to the business and what measures are being taken to protect the company from these risks.
1. Lie or overstate items on the application, financial statements or your personal financial statement.
2. Get too small a line of credit. If sales are growing quickly, you may not have enough credit to fill orders.
3. Get just one term sheet. There are plenty of lenders, so find one that understands your business and has a good rate.
4. Stop communicating. Whether it is a cash-flow issue or a business opportunity, talk to your lender. Lenders are proactive and can offer solutions.
5. Bluff. Do not threaten to leave a lending relationship just to get a better deal. The lender may just call your bluff.
Source: Factors Southwest
Valley companies are still struggling to find financing - Phoenix Business Journal:
Associate professor of law, UA The Arizona Republic
As a result of the housing collapse, many Arizonans have seen their homes lose half of their value. Many owe several hundred thousand dollars more than their homes are worth and are unlikely to dig out of their negative equity hole for decades.
For these homeowners, the American dream has become a nightmare - and their financial future is dim.
To compound the stress and anxiety, when they've called their lender to work out a solution, they've discovered that their lender won't even talk to them about a loan modification or a short sale as long as they are current on their mortgage.
With no help in sight, some of these underwater homeowners have decided that they would be better off letting go of their homes and have stopped making their mortgage payments. Many have done so with the hope that defaulting will finally bring their lender to the table, but they are also resigned to the fact that they will likely lose their homes.
It has been suggested that such homeowners are immoral or, at least, irresponsible. I disagree.
Before explaining why, it is important to emphasize that the decision to strategically default on a mortgage involves many complex, localized and individualized factors. No one should decide to strategically default on their mortgage without sitting down first with a knowledgeable professional.
But let's say that you've actually sat down with a professional to do the calculations and have concluded that defaulting on your mortgage is the only way out of your financial nightmare. Would it be immoral or irresponsible for you to do so?
The arguments against homeowners intentionally defaulting on their mortgages generally center on the same three basic points.
First, underwater homeowners "promised" to pay their mortgages when they signed the mortgage contract. Second, foreclosures lead to depreciation of neighborhoods, so underwater homeowners should hang on in order to help preserve their neighbors' property values. And, third, if all underwater homeowners defaulted, the housing market might crash. Homeowners thus have a social obligation to pay their underwater mortgage in order to save the economy.
While all three of these arguments might hold some initial appeal, none holds water.
First, a mortgage contract, like all other contracts, is purely a legal document - not a sacred promise.
Think of it this way: when you got your cellphone, you likely signed a contract with your carrier in which you "promised" to pay a set monthly payment for two years. Would it be immoral for you to break your contractual "promise" to pay for two years if you decided that you no longer needed the cellphone and elect instead to pay the early termination fee? Of course not. The option to breach your "promise" to pay is part of the contract.
Though involving more money and something of great sentimental value to most people, a mortgage contract is simply a contract. Like a cellphone contract, a mortgage contract explicitly sets out the consequences of a breach of contract.
In other words, the lender has contemplated in advance that the mortgagor might be unable or unwilling to continue making payments on his mortgage at some point and has decided in advance what fair compensation to the lender would be. Specifically, the lender included clauses in the contract providing that the lender can foreclose on the property and keep any payments that have been made. By writing this penalty into the contract, the lender has agreed to accept the property and any payments already made in lieu of the remaining payments.
Moreover, lenders charge Arizona borrowers on average an extra $800 per $100,000 borrowed because Arizona is a non-recourse state, meaning the lender cannot come after the borrower for a deficiency judgment on a purchase money loan. In other words, borrowers in Arizona pay for the option to default on a purchase money loan without recourse. The lender can only take the house.
That's the agreement. No one forced the lender to make the loan or sign the contract. Indeed, the lender wrote it. And, to be sure, the lender wouldn't hesitate to exercise his right to take a person's house if it was in his financial interest to do so. Concerns of morality or socially responsibility wouldn't be part of the equation.
In short, as far as the law is concerned, choosing to exercise the default option in a mortgage contract is no more immoral than choosing to cancel a cellphone contract. Indeed, exercising the default option in your mortgage contract is similar to cashing in on an insurance policy. You paid for it - and have you a right to exercise it.
But what about the argument that mortgage default hurts neighborhoods and the economy?
Well, first, in a capitalist society, we don't generally expect individuals to make personal economic decisions for the collective good. Aside from this fact, however, it's unfair, in my opinion, to ask underwater homeowners to prop up neighborhood property values, or the housing market, on their backs - especially if means sacrificing their ability to send their children to college or save adequately for their own retirement.
Why take homeowners, and not lenders, to task for putting their own financial interest ahead of the common good? Indeed, if lenders were less intransigent and more willing to negotiate, underwater homeowners wouldn't have to walk away from their homes in order to save themselves from financial ruin. And we wouldn't have to worry about the fragile housing market crashing again.
Why it is that we speak of morality and social responsibility only when talking about the little guy, who must take his lumps for the common good, while financial institutions are free to protect their bottom line?
It just can't be the case that it's morally acceptable for banks to look out for their financial best interest, but it's not OK for the average American do to exactly the same thing.
Buyers have no moral duty to lenders
The Arizona Republic
The psychology of the metropolitan Phoenix housing market is at a crossroads.
Decades ago, the market was a mix of long-term and short-term buyers: People who saw a house as their home, and people who saw a house as a box of equity to cash in at the first good opportunity. Long-term homebuyers were the dominant segment.
But over the years, enticed by famously steady home appreciation, the short-term speculative segment grew. Nationally, people hung on to their homes for seven to 10 years. By 2000 in Phoenix, people were selling and moving up every three to five years.
In 2000, the psychology of the metro Phoenix housing market reached a tipping point, and the speculative segment took off. Years of steady appreciation on what were still considered affordable homes stoked demand. Arizonans jumped from one house to the next. And affordable prices and steady gains attracted thousands of buyers from California.
New banking practices created easy-to-obtain equity loans and low-down-payment mortgages that drove speculation even higher. Short-term buyers, including record numbers of investors, turned metropolitan Phoenix into the hottest home market in the U.S.
The bubble burst in 2008, and the market crashed. But the speculative segment still dominates the metro Phoenix market in the form of investors, from financial institutions
to small-time landlords, snapping up thousands of foreclosure homes with the expectation that a market recovery will lead to quick profit.
As Arizona leaders try to work out of the recession and chart a new course for the state's economy - one less susceptible to the boom-and-bust cycles, less dependent on growth and real estate - the psychology of the housing market will be a factor. Will speculation continue to drive the market? Or will people with longer-term goals take it back?
This is the story of how speculation came to dominate the market and what the prospects are going forward with a housing market based on homes for living or homes as equity.
The dominant shift from long- to short-term motivations in the metro Phoenix housing market began in the mid-1990s when, for the first time, new kinds of loans allowed homeowners to more easily tap the equity in their homes.
Lenders began packaging second mortgages as home-equity lines. Second mortgages had been considered risky for decades. But encouraged by steady appreciation in home values, consumer demand took the loans mainstream. Even the new name, "home equity loans," focused on the positive and not the added debt of a second mortgage.
Lenders sent out waves of mailers and phone solicitations offering low-interest home-equity loans. Rates on the second mortgages were often lower than those on homeowners' first mortgages.
Home values continued to climb. Homeowners tapped their equity to expand and renovate, even to buy other homes.
By 1999, some lenders were so bullish on metro Phoenix's growth and rising home values that they offered homeowners second mortgages for up to 125 percent of their home's value.
People from other parts of the country, particularly California where the average house cost twice as much, saw they could afford a new home in Phoenix and watch the value rise 15 percent to 30 percent in only five years.
Arizona's population swelled on speculation, jumping from 4.2 million to 6 million in 12 years. In 2005, metro Phoenix home sales hit an all-time high of 165,000.
Amid the shifting financial dynamics, the cast of homebuyers also changed.
Before the boom of 2004-06, investors accounted for about 20 percent of all homebuyers. New residents, first-time homebuyers and homeowners selling to move up accounted for more than 75 percent of the market.
Investors were clearly speculating. But now so were many more homebuyers. Some hopscotched through homes, tapping equity at each new address.
During the boom, more out-of-state speculators caught on to Phoenix's equity play and pushed it. These investors used new loans that allowed them to buy with little or no down payments. More metro Phoenix homeowners tapped their equity and joined in the buying spree.
Speculative, short-term goals drove the home market. Houses sold in hours, often amid multiple bids.
Home sales, building and prices shot past anyone's wildest expectations. In 2006, metro Phoenix led the nation for home-price appreciation. In one year, home prices climbed 50 percent.
Many metro Phoenix homeowners who didn't sell or buy other homes during the boom still cashed in, tapping their equity for trips, cars, TVs and furniture.
The result is well-documented. Metro Phoenix home prices flattened out in 2007 as home sales slowed. By the end of 2008, home prices and sales had both dropped more than 35 percent. By March 2009, the region's home prices had plummeted 50 percent.
Today, home sales are again running near record levels. But the dynamics are different.
Investors actually represent an even bigger share of the purchases - about 50 percent of current homes sales. But most are buying low-cost foreclosures. The dollar amounts may be lower, but speculative buyers dominate the market even more right now.
Many investors believe the low prices guarantee a good return when Phoenix's market comes back. They are willing to pay cash and wait.
Meanwhile, most Phoenix-area homeowners are stuck waiting for values to rebound.
People who bought during the market peak find themselves so far away from that rebound, so far underwater with their mortgage, that they cannot or do not want to wait. So they are walking away, putting more homes into the distressed foreclosure market for more investors to buy.
Back to ownership
The psychology of the Phoenix housing market can go either way as a recovery takes place.
Some buyers, including the high number of investors, will continue to count on Phoenix's rising values to flip houses for profit - houses as boxes of equity.
Phoenix has long attracted investors. But before the boom, many were typically landlords who planned to hold on to their properties for many years. Investors who bought foreclosures in the past 18 months may want to flip them quickly. But based on recent forecasts, they will have to hold on for at least a few years to make a profit.
"Today's smart investors aren't short-term housing speculators," said Tom Ruff, an analyst with real-estate data firm Information Market. "If they are, they're foolish and will lose money. There's no place for wild speculation in Phoenix's housing market now."
Other people, chastened by the devastation of the crash, may return to long-term goals - houses as homes. The question for metro Phoenix's future is how many. As many as 40 percent of all metro Phoenix homeowners are currently underwater, meaning they owe more on their mortgage than their house is worth.
That former large middle band of average homebuyers who used to dominate the Phoenix market is sitting or stuck on the sidelines for the time being. When that large segment of average buyers returns, their mind-set probably will determine the psychology of the overall market - speculation vs. longer-term goals.
Arizona leaders - perhaps more than in the past 15 years - are now thinking about economic stability, how to build a more reliable, sustainable economic base that will carry the state steadily into a global future.
The psychology of the metro Phoenix housing market will be a critical piece of that future.
The return of a more dominant long-term mind-set that sees houses as homes could help anchor a new economic model, a plan that looks beyond the next growth boom. A continued short-term, speculative view could maintain the larger boom-and-bust cycles that have characterized Phoenix's economy for the past 50 years.
"Nothing is inherently wrong with counting on your home appreciating, but a lot of people got carried away," said Jay Butler, director of realty studies at Arizona State University. "Valley homeowners created self-fulfilling Ponzi schemes on themselves by betting on rising home prices, tapping more equity and taking on more debt until everything collapsed."
Economists and housing-market watchers say the housing bust could signal the end to metro Phoenix's boomtown days.
That will depend on what people are thinking when they return to the housing market in significant numbers.
Arizona home values may depend on mindset of buyers
Early next week the mostly-built Centerpoint condominium towers in downtown Tempe will be listed for sale by CB Richard Ellis.
The condominium project recently failed to sell at a foreclosure auction, which forced Peoria-based lender ML Manager LLC to take over the property.
A price will not be listed, but offers will be accepted for the property, said Mark Winkleman, ML Manager chief operating officer
. Already, he said, there has been interest from all over the country.
"It's attracted very prominent and well-capitalized buyers in the country," he said. "We're approaching 200 inquires and with zero marketing from around the country."
Five years ago, the Centerpoint development, which began near Maple and Sixth streets, was to include 375 condos, an upscale retail plaza, fine dining and a winery.
The Tempe City Council waived height requirements to approve the 22- and 30-story buildings. But now local stakeholders see the vacant towers as an unsightly problem.
Winkleman said the possibility of a buyer tearing down the towers to develop something else is unlikely.
He said the development could become high-end rental property, student housing or assisted living.
Winkleman said the inability to sell the condominiums at the recent foreclosure auction "was merely the lender foreclosing. We were expecting the bid to be substantially higher."
He said the minimum bid started at $8 million and could have gone up to $135 million, which was Mortgages Ltd.'s loan to Tempe Land Co. LLC, the former developer of Centerpoint. Tempe Land is a subsidiary of Tempe-based Avenue Communities LLC. Winkleman expects the development will sell in the next 45 to 60 days.
"Unfortunately, it won't recover all of it," Winkleman said. "No one has suffered worse losses than our investors. It's a tough situation."
Tempe condo towers up for sale by CB Richard Ellis
Reforming the nation's financial system has become the hot topic in Washington. Congressional Democrats have cobbled together more than 1,300 pages of proposals aimed at preventing another credit collapse like the 2008 trauma that triggered massive federal intervention and helped deepen the recession. The House and Senate have somewhat different proposals, although the focus is the same: keeping a closer watch on big banks to prevent the types of shocks that nearly brought down the system. Other proposals include better financial literacy for consumers, new oversight of executive pay, higher standards for bond-rating agencies and more illumination into the netherworld of hedge funds and derivatives. The legislation might help to stabilize the system, but it also promises extensive new government intervention in the marketplace, with more bureaucracy and uncertain costs. It has become a divisive partisan issue, with Democrats pointing to a vote next week, perhaps as early as Monday. Here are a few of the key proposals, with some last-minute changes considered likely.
• Reform proposal: Consumer protection. Congress could establish a Consumer Financial Protection Bureau, possibly at the Federal Reserve, with rulemaking powers and the ability to examine rules for banks, mortgage firms and others.
Arguments for: The idea is to coordinate federal consumer-protection efforts and react to problems quickly. The public could report problems on a hotline and receive guidance from an Office of Financial Literacy.
Arguments against: Myriad consumer-protection laws already are on the books and overseen by several banking and other financial regulators. Who's to say another layer of federal bureaucracy will help?
• Reform proposal: Large banks. The bills would strive to prevent costly bailouts in various ways. They would create an orderly process for federal regulators to liquidate big banks, could extend Fed oversight to big non-bank financial firms and could prohibit banks from certain trading and investing practices.
Arguments for: The acts aim to make big banks realize they aren't too large to fail, with the implication they shouldn't assume high risks that imperil the system. The bills would create a fund of $50 billion or more, built from fees on large financial firms, to help with liquidations and reduce the taxpayer impact.
Arguments against: Banks have failed for decades but usually not because of large size or complex holdings. Also, it remains to be seen whether Uncle Sam can devise an "orderly" way to liquidate big institutions. Plus, many innocent non-bank financial firms such as auto insurers might have to pay into the fund, too.
• Reform proposal: Systemic risk. Would create a Financial Stability Oversight Council to identify and monitor big-picture dangers that threaten the economy. It would be chaired by the Treasury Secretary, include members from other federal regulatory agencies and advise the Fed and other regulators.
Arguments for: The council would keep an eye on problematic firms and practices. It would make recommendations to the Fed and other regulators and could help bring big non-banks such as insurer AIG under Fed oversight. It also could approve Fed decisions to break up large, complex firms.
Arguments against: The council would employ an army of specialists to collect and analyze data and report on systemic risks. Yet the federal government already does a lot of this and didn't see the last crisis coming. And would the council point out systemic dangers caused by government policies?
• Reform proposal: Derivatives. These often risky financial instruments that place bets on all sorts of assets would come under more regulation. Much trading would be required on exchanges and central markets instead of private, unregulated dealings.
Arguments for: Bets on mortgage derivatives hastened the 2008 credit crunch. The bills aim to close loopholes on derivatives while imposing margin, or collateral, requirements on certain trades and improving transparency.
Arguments against: While illumination is clearly needed in this market, not all derivative trades are risky. Critics worry some restrictions could stifle innovation, impair Wall Street profits at a time when firms need to heal and hurt U.S. competitiveness.
• Reform proposal: Hedge funds. Large investment partnerships managing more than $100 million would need to register and disclose financial data to the Securities and Exchange Commission. State regulators would take over supervision of more non-hedge advisers.
Arguments for: Hedge funds seem to show up in every financial crisis, so it's reasonable to require them to provide more details on the often-big risks they undertake. The SEC currently can't examine the financial information of unregistered hedge funds.
Arguments against: The SEC is already considered overworked and underfunded. It missed the Madoff scandal and others. To ease its load, state regulators would oversee advisers with as much as $100 million in assets, up from $25 million now. But state regulators are strained, too.
• Reform proposal: Executive pay. The bills would give shareholders at public companies a non-binding say over executive compensation at public companies. They also would provide more guidance and standards to the corporate directors who set pay.
Arguments for: Executive rewards are often tied to risky practices. One intriguing proposal would force firms to take back executive pay if it's based on faulty company financial reports. Another would give the SEC more clout to open up director elections.
Arguments against: Executive pay is a tough issue to regulate. And despite popular uproar over Wall Street bonuses, shareholders often act more like sheep than lions, avoiding confrontations with management that could upset stock prices at their firms.
• Reform proposal: Credit-rating agencies. Debt-monitoring firms such as Moody's and Standard & Poor's would be subject to new SEC oversight, with the SEC authorized to hand out fines for poor performance.
Arguments for: These firms failed to give ratings that accurately reflected how risky mortgage debts were leading up to the housing meltdown. The act would add new disclosures, transparency tests and more.
Arguments against: While some changes are needed, the legislation doesn't seem to curtail the primary conflict of interest, whereby credit-rating agencies get paid by the same bond issuers that they evaluate.
Who's watching Wall Street as vote looms?
WASHINGTON - Sales of new homes took the biggest monthly jump in 47 years in March, while orders for most large manufactured products rose by the largest amount since the recession started.
While factories are benefiting from a sharp increase in orders from U.S. and foreign businesses, the fuel for new-home sales is coming from a less sustainable source: government subsidies.
Some analysts predict demand for homes will fall again this summer, preventing the beleaguered sector from adding to the economic recovery.
The Commerce Department said Friday that new home sales skyrocketed 27 percent in March, bouncing off February's record low. The figure blew past expectations as better weather and government incentives boosted sales.
New orders for durable goods - those expected to last at least three years - fell by 1.3 percent, the government said. But excluding demand for aircraft and other transportation goods, orders surged 2.8 percent, much more than analysts had projected.
The report was evidence businesses are spending more on new equipment in anticipation of a stronger economy.
"Firms are finally putting their money where their mouths are and betting on a rebound," Diane Swonk, chief economist at Mesirow Financial, wrote in a note to clients.
New-home sales, meanwhile, hit a seasonally adjusted annual pace of 411,000, the strongest month since last July. The data reflect signed contracts to purchase homes rather than completed sales and thus give economists a feel for how many buyers were out shopping.
It is likely capturing consumers who are trying to qualify for federal tax credits that expire next week. The government is offering an $8,000 credit for first-time buyers and $6,500 for current homeowners who buy and move into another property. To qualify, buyers must have a signed contract complete by April 30 and must complete their transaction by the end of June. "Everyone's just trying to sign on the dotted line," said Jennifer Lee of BMO Capital Markets.
New-home sales, orders for durable goods rise
NEW YORK - Stocks rose Friday after a strong report on new-home sales offset mixed news from corporate earnings reports. The market was held in check for much of the day after Greece decided to tap a bailout program.
The Dow Jones industrial average closed higher for the 11th time in the past 12 trading days. Friday's gains wrapped up the index's eighth consecutive weekly gain - the longest winning streak for the Dow since a two-month stretch ended in January 2004.
Sales of new homes jumped 27 percent in March, bouncing off a record low in February. It was the second straight day stocks got a lift from housing news.
The Dow rose 69.99, or 0.6 percent, to 11,204.28. The Standard & Poor's 500 index rose 8.61, or 0.7 percent, to 1,217.28, while the Nasdaq composite index rose 11.08, or 0.4 percent, to 2,530.15.
Home-sales report buoys stocks
It has a mountain out back and, apparently, a mountain of debt.
Weeds and overgrown landscaping obscure a for-sale sign in the front of the foreclosed home northwest of Deer Valley and Cave Creek roads in north Phoenix.
"This one is not too bad," real-estate agent Gary Holloway of Zip Realty said of the long-vacant home. "They get no love."
The four-bedroom house, built in 2006 by Courtland Homes, is missing a dishwasher, refrigerator and built-in microwave oven. It also has some quarter-size holes in the kitchen wall. Otherwise, it appears to be in reasonably good condition.
The foreclosed home in the Eagle Bluff subdivision needs appliances, new carpeting and paint at a cost of at least $15,000. The two-story 3,182-square-foot home has a good view of one of the unnamed Union Hills beyond the back wall.
And it could be a good buy for a cautious buyer who knows what to look for in a foreclosure.
Listed at $210,000, the home was in escrow and could become yet another of the thousands of foreclosed Valley homes that buyers have acquired from banks.
Arizona had 21,442 foreclosed homes in the first quarter of this year, according to RealtyTrac.
The state has the nation's second-highest foreclosure rate behind Nevada, with one in every 49 homes with a mortgage receiving a foreclosure filing in the first quarter, according to RealtyTrac. That's triple the U.S. average.
Just fewer than half of Phoenix's 5,183 home sales in the first quarter were foreclosures, Zip Realty reported.
Buyers of foreclosed homes can save tens of thousands of dollars on the purchase price. But real-estate agents warn of pitfalls.
Jeff Barker of Diamondback Realty in Scottsdale said buyers must rely on a home inspection to protect themselves when buying a foreclosed home.
No disclosure of missing appliances or damage is required at the trustee sale of a foreclosed property.
"You've got to do your due diligence," he said. "And hire a good real-estate agent."
Buyers often make a big mistake in underestimating the cost to remodel a foreclosed home, said Barker, who has listed about 75 homes for banks.
Learn home market
Ron Bernier, a broker with Zip Realty, said buyers can better understand the market value of a property by driving past it and seeing conditions in the neighborhood.
Buyers can expect to be bidding against others for foreclosed homes in the lower price ranges. Plus, deals often fall apart when a property does not appraise at a high enough price to satisfy the new lender.
Holloway of Zip Realty said buyers might also consider buying a previously foreclosed home that an investor already has remodeled, what's known as a fix-and-flip property.
The traditional resale market is struggling to compete on price with the distressed properties and fix-and-flip homes, he said.
To reveal market options, Holloway visited the Eagle Bluff neighborhood to show the foreclosed home mentioned earlier, as well as a similar short-sale home and fix-and-flip home.
Deal or no deal
The short-sale home, slightly smaller than the other two, was listed at $240,000.
It was in better shape than the foreclosed home, with nice cabinets and light fixtures in an upstairs office. But simulated-wood flooring had been poorly installed, and most buyers would likely choose to repaint the home's neon-colored bedrooms.
Holloway also warned that a short-sale price is not "real" until a bank accepts an offer from several bidders.
"Don't fall in love with it, because it's not real until you own it," he said of a short-sale home.
The same goes for foreclosed properties. Holloway advises clients to keep looking because distressed-property deals often take a long time to complete and can fall apart completely.
Home shows well
The fix-and-flip home he showed was nicely staged.
"Investors know the drill," Holloway said. "It's like a model home. They even installed a new doorbell and coach light at the front door."
Inside, new granite countertops, back splash and cabinets had been installed, along with new tile, carpeting and kitchen appliances. It comes with a home warranty.
The house listed at $270,000, but the investor had agreed to a price of $265,000 before a buyer got cold feet.
At $265,000, the investor stands to make about $15,000 in profit, Holloway said. The previously foreclosed home sold for $195,000 and the investor spent about $35,000 on remodeling it. The investor also will spend about $20,000 to market the home and pay closing costs and commissions.
The extra cost of the fix-and-flip over the foreclosed property might be a better deal for someone wanting a home that's move-in ready.
However, Barker of Diamondback Realty warned that buyers should be careful with fix-and-flip homes because sometimes the remodeling is cosmetic, with cheap carpet, paint and generic appliances.
Good buy or goodbye? Tips to shopping for foreclosed, short-sale and flipped homes
WASHINGTON - The economy is improving, with home sales up, jobless claims down and inflation tame. Yet there are concerns the rebound won't get much juice from the housing market, which is fueled by government tax breaks.
Sales of previously occupied homes grew by nearly 7 percent last month, more than expected, the National Association of Realtors said Thursday. It was a welcome sign after three months of decline, and a solid kickoff to what's expected to be a strong spring selling season.
Nevertheless, many analysts caution that the housing rebound could fade in the second half of the year. They predict a flood of low-priced foreclosures will push down prices.
Another threat to the U.S. economic recovery is fallout from the Greek debt crisis.
"The recovery looks like it will continue," said Jay Feldman of Credit Suisse. "We don't see another recession."
Underscoring that view, the government reported Thursday that new claims for unemployment benefits fell by 24,000 to a seasonally adjusted 456,000, the Labor Department said.
And in a separate report, the government said wholesale prices rose 0.7 percent last month. Excluding volatile food and energy costs, prices rose only 0.1 percent, which means there is little risk of inflation.
Speaking in lower Manhattan, President Barack Obama said the economy is recovering in "the fastest turnaround in growth in nearly three decades."
The Obama administration says its homebuyer tax credits and lender incentives have helped stop the housing freefall.
Critics contend the government shouldn't be providing a subsidy to buyers who would have acted anyway, and the government's foreclosure prevention effort hasn't made a dent.
Home prices could fall another 10 percent to 20 percent, warns Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think-tank.
A government index of home prices, also released Thursday, declined 0.2 percent in February, the third-consecutive monthly drop. Nationally, the median sales price in March was $170,700, nearly unchanged from a year earlier, the National Association of Realtors said.
Nationally, sales are up 18 percent from their low in early 2009, but are down 26 percent from their peak in fall 2005.
Outlook good, but analysts warn of housing downturn
Home and commercial-property values have plunged in recent years, reducing Phoenix property-tax revenue used to pay for some capital projects.
Now, city staffers are asking the City Council to consider shelving some or all of the remaining property-tax-funded projects - from a $4.7 million Ahwatukee Foothills fire station to a $1.6 million police driver's training facility - to avoid piling on the debt.
To ensure Phoenix can make its annual $150 million debt payments later this decade, the council also is mulling hiking the city's property-tax rate some time after 2012.
That would help the city avoid dipping into its general fund, a scenario that would strip funding from budget-strapped departments like police, fire, parks and libraries.
The city's property taxes comprise two levies: primary and secondary. The primary tax helps pay for general-fund services including police and fire protection, senior centers and libraries. The secondary pays for debt on infrastructure bonds.
Phoenix is the only public agency in Arizona that has a fixed combined property-tax rate. The rate, $1.82 per $100 of assessed valuation, has not changed in 14 years.
The proposal to "float" the secondary tax, a model adopted by most schools and municipalities, has pitted city staff against outspoken tax critic and Councilman Sal DiCiccio.
With a floating rate, Phoenix leaders can vote each year to move the rate up or down depending on how much money is needed to cover debt payments.
Staffers say even with an increase to the secondary tax rate, the average city residential property tax will drop in the coming years. That's because of a sharp fall in property values precipitated by the high rate of foreclosures and an oversupply of homes.
For example, in fiscal 2010-11, the average Phoenix home will be assessed at $173,000, with the average city property-tax bill at $416. With the rate floating higher the next year, the average home value is estimated at $137,000, with city property taxes pegged at just $269.
"People's property taxes will actually go down," said Assistant City Manager Ed Zuercher, who oversees the city's Budget and Research Department.
DiCiccio, however, calls that depiction "disingenuous." If the council decided to maintain the status quo with no rate increase, he said, city property-tax bills would fall even further.
"If you do nothing and keep the rate exactly what it is right now, people's property tax will be considerably lower next year," said DiCiccio, who has requested numbers from staff showing how much the average homeowner would pay if the rate stayed flat. "If you raise the rate, they will be paying more."
Council members discussed the floating-rate proposal earlier this month. They'll revisit that and other options on May 11, when they also will be presented with a list of street, storm sewer and other projects totaling $250 million that could be put on hold. A $5 million family-services center in southwest Phoenix could be delayed two years.
Other cities across the Valley are taking a hard look at delaying capital projects as well. The Tempe City Council on Thursday discussed which projects to postpone in the face of an anticipated 35 percent reduction in secondary property-tax revenue during the next three years.
DiCiccio sees the rate hike as yet another assault on the financially strapped middle class. Last week, he sent a memo to supporters and constituents blasting the city for recently raising water and sewer rates, imposing a 2 percent food tax which recently took effect, and increasing fees for small businesses.
"It's a shift of responsibility," he said. "It's expecting the public to solve our problems."
As Phoenix experienced rapid growth in the past decade, the city was able to build up a secondary-tax reserve fund. But the sharp economic downturn means that under the current tax policy, the city will not be able to pay its debt service beginning in fiscal 2017. That's because the secondary fund will be depleted, city officials said.
As of 2009, Phoenix still had $1.35 billion in general-obligation bond debt. Without adjustments to the tax policy, the city by fiscal 2017 would need to shift about $85 million in general-fund money to make its debt payments. Phoenix would have to move another $15 million the year after.
That would be devastating for residents who already are grappling with cuts to senior centers, libraries and parks, officials said.
Making additional cuts to Phoenix's operations and one of its only stable revenue sources could lower the city's positive credit rating. And shifting money from the primary fund is permanent since the state Constitution only allows the primary tax rate to be increased by up to 2 percent a year.
"It's a short-term solution that will forever impact your city," said city Budget Director Cathleen Gleason. "It will hurt you forever. It's just really short-sighted."
Phoenix council may delay property-tax funded projects
WASHINGTON — US Democrats said Sunday they were closing in on a deal on the most sweeping financial overhaul in decades but Republicans held out ahead of a showdown vote on Monday.
The key Republican negotiator on the financial overhaul bill, Senator Richard Shelby, said he was not optimistic there would be an agreement before the vote.
"Will we get a bill tomorrow?" he asked on NBC's "Meet the Press." "I doubt it."
The showdown comes just days after President Barack Obama went to Wall Street and warned of future financial meltdowns unless Congress passes major regulatory reforms.
Democrats and their two independent allies control 59 Senate seats but need at least one Republican vote to overcome delaying tactics the opposition party could use to kill the legislation.
Senate Minority Leader Mitch McConnell expressed confidence that Republicans would have all 41 votes needed to delay start of debate on the measure.
But Treasury Secretary Timothy Geithner insisted Republicans would eventually come around to support the Obama administration's "strong" bill.
"I'm very confident," he told CNN's "State of the Union."
"I think we're going to have very strong support from Republicans for a strong bill... Nobody wants, you know, after a crisis that caused, you know, eight million people to lose their jobs, this degree of pain and suffering."
The main sticking point in what McConnell decried as a "partisan" bill was a 50-billion-dollar fund to wind down failing firms.
Republicans say the fund would lead to endless bailouts, a charge Obama's administration has repeatedly denied.
"It's better not to pre-fund, no matter how you fund it, whether it's a tax on banks or whatever it is, a fund that creates expectation it will be used," McConnell told "Fox News Sunday."
"What we need to do is make it virtually, if not impossible, to be too big to fail. The way you do that is enhanced capital requirements."
Although McConnell vowed to uphold the Republican filibuster, both Shelby and Senate Banking Committee chairman Christopher Dodd, a Democrat, said they were close to clinching a deal as they pursued talks on how to address troubled financial institutions without resorting to taxpayer-funded bailouts.
"We're getting there, we're close," Dodd said on NBC. "I think Richard and I have a pretty good understanding of where we are on the bill."
Shelby said both sides were "closer than we've ever been," noting that only "two or three" issues remained to be resolved.
AFP: Republicans warn of delay on financial overhaul
Friday, April 23, 2010
Sunday, April 18, 2010
WASHINGTON (CNNMoney.com) -- With a weekend push from President Obama and the SEC charges against Goldman Sachs in the background, Democrats plan to start debating the Wall Street reform bill in the Senate this week, even as Republicans continue to say they oppose the bill.
The president made reform the centerpiece of his weekly radio address to the nation.
"The consequences of this failure of responsibility -- from Wall Street to Washington -- are all around us: 8 million jobs lost, trillions in savings erased, countless dreams diminished or denied, " Obama said. "I believe we have to do everything we can to ensure that no crisis like this ever happens again."
Wall Street reform got additional impetus Friday when the Securities and Exchange Commission charged Goldman with defrauding investors on mortgage-backed securities. (The tale of Goldman's fraud charges)
But, in a letter to Senate Democrats on Friday, 41 Senate Republicans said they "are united" in opposing the current bill that passed the Banking Committee last month, according to a letter penned by Senate Minority Leader Mitch McConnell, R-Ky.
The letter signals that Republicans have enough votes to delay the bill. However, their letter stopped short of vowing to block the bill from being debated. They said they wanted more say in creating a "bipartisan and inclusive approach."
Democrats responded with a timeline pointing out all the different meetings and negotiations that have gone on between lawmakers and staffs of both parties over the past six months. They also point out that Banking panel chairman Sen. Christopher Dodd, D-Conn., and ranking member Sen. Richard Shelby, R-Ala., continue to meet and negotiate differences.
"We can disagree over serious, substantive issues. We can have a real debate over the future of our country, but if this bill does not represent a bipartisan effort, I don't know what does," said Dodd. "I have been in extensive talks with my Republican colleagues for over a year, and I still am."
Does Goldman case help Chris Dodd?
Obama took a shot at McConnell on Saturday, accusing him of coming out against reform a day after meeting with a group of Wall Street executives.
The Wall Street overhaul would create a new unwinding process for failing financial firms and require banks to beef up capital cushions, while creating a new consumer financial regulator to watch over mortgages and credit cards.
Veterans of the process say the Senate needs to pass a bill sometime in the next month and a half, before Congress breaks for Memorial Day and lawmakers get caught up in elections. The House passed a regulatory overhaul in December, and the two chambers would have to reconcile differences before Obama could sign a measure into law.
What the disagreements are: However, many of the same hang-ups that have hampered progress for the past year remain, especially when it comes to creating a wind-down process for failed institutions, a new consumer financial protection regulator, and keeping an eye on the kind of complex financial dealings -- such as the ones at the center of the Goldman case -- that led to the crisis.
The Senate bill would create a $50 billion pot of money, funded by banks, that would go toward taking down failing Wall Street banks. Many Republicans don't want a pot of money dedicated for the sole purpose of government intervention, saying it would give an implicit guarantee of government support. They call the fund a bailout, even though it's not paid for by taxpayers.
Also in the Senate bill is a new consumer regulator that would be housed inside the Federal Reserve but would be considered independent. The regulator's mission would be to ensure consumers get a fair shake with mortgages and credit cards.
Republicans don't like the extensive rule-making and enforcement powers that the consumer regulator would get, saying they would threaten bank safety and soundness.
Another big area of disagreement is over ways to prevent future collapses, such as that of American Insurance Group (AIG, Fortune 500). The Senate wants to force trading on complex financial products, known as derivatives, to be done on clearinghouses in order to make such trades more open to scrutiny.
However, Republicans and Democrats disagree over which derivatives, such as those traded by big agricultural and airline companies to mitigate risk, could continue unregulated.
Despite the loud disagreements, Democrats are signaling that they intend to move forward with the bill, even as negotiations continue. "We've negotiated enough," Majority Leader Harry Reid said Thursday.
Democrats are working hard to nail down one Republican to vote with them. Secretary Tim Geithner met with several Republican lawmakers trying to woo votes, including Sens. Shelby, Richard Lugar, R-Ind. and Orrin Hatch, R-Utah.
But the difficulty facing the bill was brought into focus last Thursday, when Sen. Bob Corker, R-Tenn., added his voice to those saying the bill's path had taken a "partisan turn." Corker worked extensively with Democrats on parts of the current bill, including the winding down process and the consumer financial protection regulator.
"The fact is, the bill has taken a partisan turn. There are some bipartisan solutions in this bill, I grant that. But there's still work to be done," Corker said. "Let's finish that work before it gets to the floor. Let's just finish what we started."
Wall Street reform could hit the Senate this week - Apr. 18, 2010
The penthouse in the historic Orpheum Lofts is listed for sale at $1.75 million. High-tech entrepreneur Scott Jochim put the 2,777-square-foot luxury property on the market after spending $500,000 and hundreds of hours to build it out to exacting art deco standards.
The property includes 1,500 square feet of rooftop decking that incorporates a cabana and large hot tub with 360-degree views and space to plant gardens or add more deck. Jochim owns the entire roof of the 11-story Orpheum Lofts, at 114 W. Adams St. in downtown Phoenix.
Although he’s had only about 18 months to enjoy the fruits of his labor and says he loves it, Jochim has put the signature property on the market. It’s time to move on to the next project, he said.
Jochim is founder of Digital Tech Frontiers LLC, a Tempe company that produces virtual reality programs for the education, travel and medical industries.
The 36-year-old maverick has integrated technology throughout the house, both for entertainment and comfort, including video, audio, lighting and HVAC systems.
As the private elevator opens onto the stark white limestone floors, a digitized female voice says, “Good morning.” If Jochim is late getting home, the voice says, “Where were you?”
There also are other fun greetings. Whenever the elevator door opens, he receives an e-mail informing him of an arrival.
Jochim was a suburbanite living in Ahwatukee when he stumbled on the opportunity to purchase the rooftop shell of the Orpheum Lofts from developer Norm Sheldon in 2007. Sheldon and his partners had remodeled the 1931 building from offices to private residences.
Sheldon had intended to build out the penthouse for himself, but changed his mind and sold what was then unlivable space to Jochim for $800,000.
Jochim served as general contractor, supervising a bevy of subcontractors, including a cabinetmaker who went out of business because of the recession. Jochim took over the payroll to complete his project. There were other challenges, such as working full time at his company “and then coming here to the job site from 5 to midnight, seven days a week.”
The outcome exceeded his expectations.
“I have this home that is timeless. It’s like living in the Wrigley Mansion. I wish I could hold on to it forever,” he said.
Jochim has enlisted David Newcombe of Russ Lyon Sotheby’s International Realty to market the property. In the meantime, he leases it out about once a month for weddings, photo shoots and special events.
“This place should not be hidden,” he said.
In fact, Jochim thinks potential buyers might be able to convert the penthouse to a commercial use, but likely would have to obtain approval from the homeowners association.
Jochim said the penthouse was built to meet commercial codes. As an added incentive, the building is listed on the National Register of Historic Places, which carries a significant reduction in property taxes.
The building has 89 other units, ranging in size from 700 to 1,800 square feet. Seven are on the market, including one in foreclosure, according to information provided by Russ Lyon Sotheby’s.
Across town, Keith Mishkin, founder and broker of Cambridge Properties, is listing one of the penthouses at the Esplanade near 24th Street and Camelback Road.
The sellers are empty-nesters looking to trade in their high-rise lifestyle to build a single-family home in Paradise Valley.
The 3,100-square-foot penthouse was designed by Scottsdale architect Vern Swaback, a Frank Lloyd Wright protege. It also incorporates panoramic views of the Arizona Biltmore’s golf courses.
Orpheum, Esplanade penthouses for sale - Phoenix Business Journal:
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